Bonds issued by companies, local governments, or other organizations to raise funds for domestic and overseas green projects are called Green Bonds.

Characteristics

  1. Proceeds are allocated exclusively to Green Projects
  2. Proceeds are tracked and managed in a reliable manner
  3. Transparency is ensured by reporting after the issuance of the bonds

Issuers of Green Bonds

  1. Corporations that raise funds for Green Projects
    (including SPCs that only handle Green Projects)
  2. Financial institutions that raise investment funds and loans for Green Projects
  3. Local governments that raise funds for Green Projects.

Investors

  1. Institutional investors, such as pension funds and insurance companies that commit to ESG (environmental, social, and governance) investments
  2. Investment managers entrusted with the management of ESG investments
  3. Individual investors who focus on the use of the proceeds

Types of Green Bonds

In the Green Bond Principles (GBP) (Published by the International Capital Market Association: ICMA), the following four types are indicated as Green Bonds. There are differences among them in terms of repayment source, etc.

1Standard Green Use of Proceeds Bond
This bond is issued to raise funds for Green Projects. It constitutes recourse-to-the-issuer debt and its redemption does not depend on the cash flows of specific Green Projects.
2Green Revenue Bond
This bond is issued to raise funds for Green Projects. It is a non-recourse-to-the-issuer debt and its redemption depends on the cash flows of public Green Projects such as use fees and special taxes on public facilities linked to Green Projects. For example, bonds whose proceeds are allocated to the development and operation of waste treatment sites by extra-governmental organizations and whose redemption is only possible via the revenue from the projects.
3Green Project Bond
This bond is issued to raise funds for Green Projects. It is a project bond and its redemption depends on the cash flows of a single or multiple Green Projects. For example, the bonds in this category are issued by SPCs that exclusively engage in renewable energy generation projects whose proceeds are allocated to develop and operate facilities, and so on, and can be redeemed only by the revenue from the projects.
4Green Securitized Bond
The bonds in this category usually have more than one asset linked to Green Projects (including loan claims, lease claims, and trust beneficiary rights) that are used as collateral and are redeemed using the cash flows from these assets. For example, ABS (Asset Backed Securities), backed by assets like loan claims linked to solar panels, energy efficient appliances, equipment, houses, and low-emissions vehicles, such as electric vehicles and hydrogen vehicles, belong to this category.

Benefits of Green Bonds

Benefits of Issuance

1Enhancing sustainability management
Working on Green Bonds can lead to the development of, or build on the initiatives already undertaken on, governance, strategy and risk management structures as well as increase internal awareness related to sustainability within an organization such as companies. This also helps satisfy the ESG information disclosure requirement placed by the Task Force on Climate-related Financial Disclosures (TCFD) and others. Furthermore, it will improve the medium- and long-term ESG assessment of issuers, which will in turn help raise their corporate value.
2Acquisition of public acceptance by demonstrating willingness to promote Green Projects
Issuing a Green Bond allows issuers to consolidate their funding base by building relationships with new investors, who value investment destinations that help to solve environmental problems such as global warming.
3Reinforcement of the funding base by building relationships with new investors
Issuing a Green Bond offers issuers the opportunity to consolidate their funding base by building relationships with new investors, who value investment destinations that help to solve environmental problems such as global warming.
4Possibility of raising funds on relatively favorable terms
For companies that have not built solid relationships with financial institutions, such as emerging renewable energy companies, it may not be possible to obtain loans with advantageous terms. In such cases, a company issuing Green Bonds (Green Project Bonds) or similar instruments that use cash flow generated from renewable energy or other comparable projects it operates with strong business viability to repay interest and redeem bonds may be able to raise funds on relatively favorable terms from investors who are well versed in evaluating the feasibility of such businesses.

Benefits of Investment

1Serving as ESG investments
By investing in Green Bonds, investors can show that they are actively funding and supporting Green Projects while earning a stable cash flow unless the issuer defaults on them, and through this, gain public acceptance.
2Achieving both investment returns and environmental and other benefits
By investing in Green Bonds, investors can support the realization of the environmental benefits that contribute to creating a sustainable society while simultaneously gaining returns on their bond investments.
3Direct investments in Green Projects
In light of the global quest for lower GHG emissions based on the Paris Agreement, it is expected that the demand for investment in Green Projects involving renewable energy and energy efficiency will increase substantially. Green Bonds offer investors the opportunity to invest directly in such projects.
4Risk hedging via alternative investments
Green Bonds issued as project bonds can serve as alternative investments that are regarded as not closely correlated with traditional assets, such as stocks and bonds, and can serve the role of an effective alternative to reduce risks through diversified investment.
5Engagement
Investors in Green Bonds are able to engage more effectively with issuers concerning the existence of environmental benefits and the size of impact, based on information such as the sustainability of environmental benefits and negative impacts on the environment, which are obtained through the analysis and evaluation of non-financial information related to environmental benefits and other factors disclosed by the issuers. Such increased engagement is expected to result in a favorable cycle of the improved sustainability of the issuers and the better medium- and long-term investment outcome for the investors, which will ultimately lead to the building of a sustainable society.

Environmental Benefits

1Contribution to global environmental conservation
The dissemination of Green Bonds expands private investments in Green Projects, which contributes to reduction of GHG emissions and prevention of the degradation of natural capital.
2Raising individuals' awareness of green investments
The dissemination of Green Bonds will enhance individual awareness of green investments and individual interest in the use of savings and investments, contributing to the "greenization" of the economy as a whole.
3Contribution to resolving social and economic issues through the promotion of Green Projects
The promotion of Green Projects through the dissemination of Green Bonds lowers energy costs, reactivates the regional economy, and enhances resilience in the event of disasters.